UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number: 0-16645
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------
(Exact name of registrant as specified in its charter)
California 33-0157561
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
--------------------- ----------
(Address of principal executive offices) (Zip Code)
(650) 343-9300
--------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Total number of units outstanding as of March 31, 1998: 14,555
Page 1 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
Assets --------- ------------
- ------
<S> <C> <C>
Rental property, net of accumulated
depreciation of $1,505 and $1,463
at March 31, 1998 and December 31,
1997, respectively $ 4,763 $ 4,803
Rental property held for sale, at estimated
fair value 675 675
-------------- --------------
Net real estate investments 5,438 5,478
Cash and cash equivalents 849 749
Accounts receivable 54 70
Deferred costs, net of accumulated amortization
of $32 and $30 at March 31, 1998 and
December 31, 1997, respectively 14 15
Other assets 11 11
-------------- --------------
Total assets $ 6,366 $ 6,323
============== ==============
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Accounts payable and other liabilities $ 102 $ 85
-------------- --------------
Partners' equity (deficit):
General Partner (179) (180)
Limited Partners, 14,555 limited partnership
units outstanding at March 31, 1998
and December 31, 1997 6,443 6,418
-------------- --------------
Total partners' equity 6,264 6,238
-------------- --------------
Total liabilities and partners' equity $ 6,366 $ 6,323
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Income
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
1998 1997
------------- -------------
<S>
<C> <C>
Revenue:
Rental income $ 277 $ 303
Interest and other income 6 3
------------- -------------
Total revenue 283 306
------------- -------------
Expenses:
Operating 121 118
Depreciation and amortization 44 46
General and administrative 64 67
------------- -------------
Total expenses 229 231
------------- -------------
Net income $ 54 $ 75
============= =============
Net income per limited partnership unit $ 3.64 $ 5.08
============= =============
Distributions per limited partnership unit:
From net income $ 1.92 $ 0.96
Representing return of capital --
------------- -------------
Total distributions per limited partnership unit $ 1.92 $ 0.96
============= =============
Weighted average number of limited partnership
units outstanding during the period used to
compute net income and distributions per
limited partnership unit 14,555 14,555
============= =============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the three months ended March 31, 1998 and 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ (180) $ 6,418 $ 6,238
Net income 1 53 54
Distributions -- (28) (28)
------------- ------------- --------------
Balance at March 31, 1998 $ (179) $ 6,443 $ 6,264
============= ============ ==============
Balance at December 31, 1996 $ (178) $ 6,623 $ 6,445
Net income 1 74 75
Distributions -- (14) (14)
------------- ------------ -------------
Balance at March 31, 1997 $ (177) $ 6,683 $ 6,506
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended
March 31,
------------------
1998 1997
-------- ----------
Cash flows from operating activities:
Net income $ 54 $ 75
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 44 46
Changes in certain assets and liabilities:
Accounts receivable 16 --
Deferred costs (1) (1)
Other assets -- (24)
Accounts payable and other liabilities 17 25
---------- ---------
Net cash provided by operating activities 130 121
---------- ---------
Cash flows from investing activities:
Additions to real estate (2) (24)
----------- ---------
Net cash used for investing activities (2) (24)
----------- ---------
Cash flows from financing activities:
Distributions to partners (28) (14)
----------- ---------
Net cash used for financing activities (28) (14)
----------- ---------
Net increase in cash and cash equivalents 100 83
Cash and cash equivalents at beginning of period 749 426
---------- ---------
Cash and cash equivalents at end of period $ 849 $ 509
========== =========
See accompanying notes to financiaL statementS.
Page 5 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1998
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Corporation (successor by merger with Glenborough
Inland Realty Corporation) ("Glenborough"), the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of Rancon Income Fund I, a
California Limited Partnership, (the Partnership) as of March 31, 1998 and
December 31, 1997, and the related statements of income, changes in partners'
equity (deficit) and cash flows for the three months ended March 31, 1998 and
1997.
Allocation of the profits and losses from operations are made pursuant to the
terms of the Partnership Agreement. Generally, net income and distributions from
operations are allocated 90% to the limited partners and 10% to the general
partner. Net losses from operations are allocated 90% to the limited partners
and 10% to the general partner until such time as a partner's account is reduced
to zero. Additional losses will be allocated entirely to those partners with
positive account balances until such balances are reduced to zero. In no event
will the general partner be allocated less than 1% of net losses for any period.
Distributions of cash from operations are generally allocated as follows: (i)
first to the Limited Partners until they receive a noncumulative 6% return per
annum on their unreturned capital contributions and (ii) the remainder, if any
in a given year, shall be divided in the ratio of 90% to the Limited Partners
and 10% to the General Partner.
Effective January 1, 1995, RFC entered into an agreement with Glenborough
whereby RFC sold to Glenborough the contract to perform the rights and
responsibilities under RFC's agreement with the Partnership and other related
Partnerships (collectively, the Rancon Partnerships) to perform or contract on
the Partnership's behalf for financial, accounting, data processing, marketing,
legal, investor relations, asset and development management and consulting
services for the Partnership for a period of ten years or until the liquidation
of the Partnership, whichever comes first. Effective January 1, 1998 the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relation services. According to the contract, the Partnership will pay
Glenborough for its services as follows: (i) a specified annual asset
administration fee ($187,000 in 1998); (ii) sales fees of 2% for improved
properties and 4% for land; (iii) a refinancing fee of 1% and (iv) a management
fee of 5% of gross rental receipts. As part of this agreement, Glenborough will
perform certain responsibilities for the General Partner of the Rancon
Partnerships and RFC agreed to cooperate with Glenborough, should Glenborough
attempt to obtain a majority vote of the limited partners to substitute itself
as the Sponsor for the Rancon Partnerships. Glenborough is not an affiliate of
the Partnership or RFC.
Page 6 of 11
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1998
(Unaudited)
Reclassifications - Certain amounts in the 1997 financial statements have been
reclassified to conform to the current year presentation.
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1997 audited
financial statements.
Page 7 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
INTRODUCTION
- ------------
The following discussion addresses the Partnership's financial condition at
March 31, 1998 and its results of operations for the three months ended March
31, 1998 and 1997. This information should be read in conjunction with the
Partnership's audited December 31, 1997 Financial Statements, notes thereto and
other information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of April 21, 1989, Rancon Income Fund I (the Partnership) was funded from the
sale of 14,559 limited partnership units (Units) in the amount of $14,559,000.
Four Units were retired in 1990 and 14,555 Units remain outstanding at March 31,
1998. As of March 31, 1998 the Partnership had cash of $849,000. The remainder
of the Partnership's assets consist primarily of its investments in properties,
which totaled approximately $5,438,000 at March 31, 1998.
The Partnership's primary source of funds consisted of the proceeds of its
public offering of Units. As the Partnership was organized for the purpose of
acquiring income producing properties, the cash generated from such properties,
net of costs incurred in operating the properties, has also been a significant
source of funds for the Partnership. Such cash flows from operating activities
have been sufficient to provide funds to reinvest in the properties by way of
improvements, as well as to fund distributions to the limited partners.
All of the Partnership's assets are located in Southern California and have been
directly affected by the economic weakness of the region. Management believes,
however, that the market has flattened and is no longer falling in terms of
sales prices. Management continues to evaluate the real estate market in which
the Partnership's assets are located in an effort to determine the optimal time
to dispose of them and realize their maximum value.
The Partnership currently owns three properties: Wakefield Industrial Center (a
44,200 square foot light industrial building in Temecula, California), Bristol
Medical Center (a 52,311 square foot office building in Santa Ana, California)
and Aztec Village Shopping Center (a 23,789 square foot retail center in San
Diego, California).
Management believes that the Partnership's available cash together with the cash
generated by the operations of the Partnership's properties will be sufficient
to finance the Partnership's continued operations. The Partnership is currently
soliciting offers for the sale of Aztec Village Shopping Center. This rental
property is classified as property held for sale on the Partnership's March 31,
1998 and December 31, 1997 balance sheets.
The increase in accounts payable and other liabilities from December 31,
1997 to March 31, 1998 is due to the accrual of property taxes which are payable
in April 1998.
Page 8 of 11
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Rental income decreased $26,000 or 8.6% during the three months ended March 31,
1998 compared to the same period in 1997 due to a $13,000 decrease in rental
income for Bristol Medical Center and a $13,000 decrease in operating expense
reimbursements at the Wakefield Building. Occupancy rates as of March 31, 1998
were 79%, 46%, 100% for the Bristol Medical Center, Aztec Village Shopping
Center and Wakefield Building properties, respectively, compared to 85%, 42% and
100%, respectively, as of March 31, 1997.
Operating expense, depreciation and amortization expense and general and
administrative expense all remained consistent during the three months ended
March 31, 1998 and the three months ended March 31, 1997.
Year 2000 Compliance
- --------------------
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given the information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 9 of 11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 10 of 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: May 14, 1998 By: /s/ Daniel L. Stephenson
------------------------
Daniel L. Stephenson
Director, President, Chief Executive Officer
and Chief Financial Officer of
Rancon Financial Corporation,
General Partner of Rancon IncomePartners I,L.P.
Page 11 of 11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000791996
<NAME> Ranco Income Fund I
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 849
<SECURITIES> 0
<RECEIVABLES> 54
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 860
<PP&E> 6,943
<DEPRECIATION> 1,505
<TOTAL-ASSETS> 6,366
<CURRENT-LIABILITIES> 102
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6264
<TOTAL-LIABILITY-AND-EQUITY> 6366
<SALES> 0
<TOTAL-REVENUES> 283
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54
<INCOME-TAX> 0
<INCOME-CONTINUING> 54
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
